Success and Succession. Tim Kochis

for them.

      Introduction

      This book grew out of an industry conference in 2013 in Dallas, Texas, hosted by financial industry journalist Bob Veres. Bob had asked Eric and Jay to come to Dallas to take part in a panel discussion, which he called the first of its kind, focused on successors talking to founders about the transition issues they faced in their businesses – from a successor's point of view. At the time, Jay was 33 and the president and chief operations officer (COO) of a large registered investment advisor and Eric was the 38-year-old chief executive officer (CEO) of Austin Asset.

      There was a strong tone at the conference; the industry needed to hear more from successors. A day after Jay's and Eric's panel on transition issues for successors (also a day after Tim Kochis was given the conference's inaugural Leadership Award), Bob hosted a similar panel, but with members talking about their opinions as founders. The opinions from one day to another were similar in many respects, but there were clearly items where founders and successors materially disagreed. Instead of having two separate panels, it would have been an interesting social experiment to put the two points of view on one stage and thus try to do a better job of resolving the issues. We agreed that this book would become that stage.

      The existing literature on succession tends to have a similar formula: What's been written was either written by a consultant, an academic, or a founder, usually after a successful transition. That formula will not apply in this book. Of course, the academic framework and successful stories have great relevance to the conversation. We have interviewed many industry observers and commentators and try to incorporate their wisdom in what follows. However, the truth is that more real-world experience is needed in this conversation. Transitions sometimes fail, not because of poor intentions, but because some unaddressed conflicts or other emotional or operational issues got in the way. Those who have actually been there can help others better navigate these often perilous waters.

      A quick note on our backgrounds is relevant here. Tim is the ultimate founder. After an extremely successful run with his own firm, he and Rob Francais put their firms together and formed Aspiriant. Tim ran the firm as initial CEO for 22 months postmerger, and, as part of the merger plan, Rob then took on the leadership role to continue the firm's prominence as one of the largest and most highly respected independent wealth management firms in the country. Eric joined Austin Asset as an unpaid intern while attending the University of Texas. He joined the founder, and an early partner, as the third employee. His ascent to the CEO role of the firm is an up-and-down story, but has ended well for him and the firm's founder, with a successful transition. Jay is a senior vice president for one of the financial services industry's leading technology and consulting platforms, Envestnet Asset Management. His role at Envestnet, combined with his past experience as president and COO of a large RIA and his consulting background, makes him uniquely qualified to talk about the operational and succession issues firms face.

      Transition issues are present regardless of which industry an advisory firm sits in and regardless of the firm's size. This book is not designed to be an academic exercise but, rather, a collaboration of industry thought leaders, practitioners, firms challenged by succession, firms not thinking about it, and firms that have made it to the other side of a successful transition. In our research and interviews, a common framework emerged. For firms to successfully deal with succession and transition, they are required to do four things well:

      1. Understand what the founders are trying to achieve and what the firm values and stands for.

      2. Create a firm without founder dependency. The firm must come out on the other side with multiple capabilities built around a team.

      3. Establish a governance and control model consistent with the needs of how the firm must operate to best serve clients.

      4. Transition the equity of the firm in a way that is consistent with founder and successor desires.

      These four common themes led to the structure of this book. The book is divided into the three sections we felt best embodied the difficulties of transitioning an advisory business: Operational Challenges, Financial Challenges, and Emotional Challenges. We deal with real or potential conflicts between founders and successors, bring in outside opinions from various industry leaders, and, we hope, deliver some important ideas to create a road map to success. Regardless of firm size, transition is tough. But size does matter, as we will explore. Sometimes it makes the transition easier; in other cases, it creates its own obstacles.

      Founders and successors often have differing opinions, sometimes leading to conflict. We want to deal with this conflict openly and honestly to help firms successfully transition through these challenges.

      This book is inspired by three central themes:

      1. The transition process is about having choices and making them. Founders and successors will have dozens of choices to make during this process. Doing nothing is one such choice. And there are points throughout the transition where doing nothing is the right choice. However, those circumstances are rare. Doing something and choosing to be an active participant in the transition process leads to much higher levels of satisfaction for all involved.

      2. Founders and successors are likely to sometimes disagree, sometimes very seriously. While this may be inevitable, it is not insurmountable. The advice in this book stems from the authors' experience-tested belief that an expectation of mutual respect should always start as the foundation and most often fosters the best outcomes.

      3. Humility needs to drive the point of view from both sides. Founders could approach the transition process with the following point of view: “Heck with the successors and the employees. Don't they appreciate that without me they wouldn't even have their jobs? I built this firm and I will do whatever I want.” Successors can have an equally emotional viewpoint: “Sure, the founder built the business, but now he's on the beach and I'm here putting in 60 hours a week to make the firm thrive. Without me here to take care of the place, the founder would sure be out of luck.” Although we understand the legitimacy, in part, of both perspectives, not getting the transition process beyond this emotional level almost guarantees failure.

      When we started this journey, we laid out the goals for this project: have fun working together; add, in a significant way, to the dialogue around one of our industry's most important business issues; and help founders and successors increase their odds of success in the process of transition. Thus far, we can assess completion on only one of these goals. We did have fun working through this effort. Whether we've achieved the other two are for you to judge. We hope we meet your needs. Enjoy the book.

      Section I

      Operational Challenges … and Solutions

      Chapter 1

      The Founder as the Sun

      All truths are easy to understand once they are discovered; the point is to discover them.

– Galileo Galilei

      The gravitational pull of the sun caused the formation of the planets and set their orbits. Though planets are of different sizes and chemical makeup, some orbit quickly, some slowly, and some even appear to move backward. The system formed and remains in existence only because of the sun.

      A basic truth – the planets revolve around the sun – took many thousands of years to become a commonly accepted perspective. Geocentrism, which placed the Earth at the center of the universe, dominated human thinking for thousands of years. We now know, of course, that without the sun at the outset no planets would have formed, and without the sun now the planets would drift into oblivion. Many advisory firms seem to operate in a similar manner: They arose and continue to work because of the founder, and without the founder the company would blow apart. But is what is true and necessary for our solar system the proper model?

The Evolution of a Founder-Centric Firm

      It's easy to understand how founder-centric firms developed in the independent advisory space. They are the evolutionary result of the way in which many independent firms had to operate and grow to stay alive. The development trajectory of most independent firms is similar. In many cases, the founders graduated from college or advanced degree programs and landed at large corporations. In their younger years the work was exciting